GBP/USD near highest since September, just below 1.2550 ahead of FOMC minutes

• GBP/USD rises for the third day in a row and hits a two-month high.
• Dovish Fed expectations, falling US bond yields and positive risk tone weaken the Dollar.
• Technical buying above the 100-day SMA fuels momentum ahead of FOMC minutes.

The GBP/USD pair continues to gain ground for the third day in a row and hits new two-month highs during the session on Tuesday. The pair maintains the buying tone around the 1.2550 area during the early stages of the American session and seems ready to consolidate the bullish trend due to the underlying bearish sentiment around the US Dollar (USD).

In fact, the DXY Dollar Index, which measures the Dollar against a basket of major currencies, falls to its lowest level since August 31 amid dovish expectations from the Federal Reserve (Fed). Market participants now appear convinced that the US central bank has ended its monetary policy tightening campaign and have been pricing in the possibility of a series of rate cuts in 2024. This has led to a further decline in yields. US Treasuries, which, together with the positive tone of the stock markets, has weighed on the safe-haven USD and favored the GBP/USD pair.

Elsewhere, the British Pound (GBP) is supported by the fact that Bank of England (BoE) Governor Andrew Bailey downplayed speculation about a possible rate cut. At an event on Monday, Bailey said it was too early to think about rate cuts and that borrowing costs might have to rise again if there were signs that inflation was becoming more persistent than expected. This is seen as another factor lending support to the GBP/USD pair, although bulls might refrain from making aggressive bets ahead of the crucial FOMC meeting minutes.

Investors will learn what Fed officials think about whether the U.S. central bank should raise interest rates again. This will influence the short-term dollar price dynamics and give new directional momentum to the GBP/USD pair. However, the pair seems to have found acceptance above the 100-day SMA, which could have already laid the foundation for a new appreciation move in the short term.

Technical levels to monitor